How a regular 9-to-5 employee earns passive income for financial independence
The 4% Rule in 2025: Is It Still Safe?
If you’ve spent time in the financial independence community, you’ve probably heard of the 4% rule. It’s one of the most popular benchmarks for figuring out how much you need to retire without running out of money.
The basic idea is simple: withdraw 4% of your portfolio in the first year of retirement (and adjust for inflation each year after). According to historical U.S. market data, there’s a very high chance your portfolio will last at least 30 years.
This guideline comes from the famous Trinity Study of the 1990s, which tested withdrawal rates across decades of stock and bond returns. But that study assumed a traditional retirement age and a portfolio balanced between stocks and bonds.
Here we are in 2025. Inflation, interest rates, and market dynamics look very different than they did in the 1990s. And my own investing approach doesn’t fit the classic stocks-and-bonds model at all. So the big question is: is the 4% rule still safe today and is it even the best way to plan for financial independence?
The 4% Rule in Today’s Context
Let’s look at what’s changed since the Trinity Study:
- Inflation Is Back on the Radar. After decades of low inflation, we saw spikes above 9% in 2022. Inflation has cooled since then, but it reminded everyone that rising prices are a real risk for retirees.
- Higher Interest Rates. After years of near-zero rates, central banks raised rates sharply. Bonds now yield more than they did in the 2010s, but their prices also fluctuate more when rates move.
- Market Volatility. In just the last five years, we’ve seen a pandemic crash, rapid recoveries, tech booms, and geopolitical shocks. A retiree relying on withdrawals could easily get caught by bad timing.
- Longer Lifespans. Many people retiring in their 40s, 50s, or even 60s may live well past 90. That means the traditional “30-year retirement” assumption may not be enough anymore.
All of this suggests that the 4% rule, while still useful, needs to be applied with more nuance today.
Where I Differ: No Bonds, Only Stocks + Provident Fund
The Trinity Study assumed a stocks-and-bonds portfolio. Bonds provided stability and income, while stocks drove growth.
But personally, I don’t invest in bonds at all. Instead, I treat my provident fund contributions as the bond portion of my portfolio. They are government-backed, relatively stable, and provide a predictable return.
That frees me up to keep my investment portfolio heavy in dividend growth stocks, which power both my financial independence and passive income.
This setup gives me:
- Provident fund = stability and baseline security
- Dividend stocks = growth + cash flow
It’s my way of combining safety with growth, without holding traditional bonds directly.
Why I Prefer Dividend Growth Over the 4% Rule
While the 4% rule is a great guideline, I’ve built my financial independence plan around dividend growth investing. Here’s why:
- No Need to Sell Stocks for Income
The 4% rule assumes you sell shares each year to generate cash. That exposes you to sequence of return risk – the danger of selling during a downturn, which can permanently shrink your portfolio. By focusing on dividends, I avoid having to time the market or liquidate shares at bad moments. - Built-In Inflation Hedge
Quality dividend growth companies raise their payouts regularly. This means my income naturally increases over time, helping offset inflation. As long as I don’t let lifestyle inflation outpace my dividend growth, I can sustain my expenses indefinitely. - Perpetual Passive Income
A dividend portfolio can, in theory, pay forever without touching the principal. This gives me peace of mind: I know my investments can fund my life. Cross-generational wealth is optional, not a must – but if I choose, the income stream can continue for my family too.
My Experience Living This Out
When I started my financial independence journey in 2015, the 4% rule gave me a clear target. Annual expenses × 25 = FI number. For example, if you spend $40,000 a year, you’d need about $1 million.
But as I built my dividend portfolio – now generating over $39,000 in annual income, I realized something important:
- My income comes from dividends, not from selling stocks.
- I don’t worry about market swings the way I would if I had to sell shares.
- During downturns (like COVID-19 when my portfolio dropped by nearly 50%), I did experience dividend cuts, not a complete stop, but a temporary reduction. Over time, payouts recovered as businesses stabilized.
- I also used that downturn as an opportunity to buy more quality dividend stocks at lower prices, which ultimately boosted my long-term dividend income once markets normalized.
- Living in Singapore, with excellent public transport, I avoid major expenses like owning a car – keeping my FI number lower than someone in the U.S.
In other words, my portfolio feels less like a “pile of money I might run down” and more like a machine that pays me for life, even if it sputters briefly during tough times.
How to Think About the 4% Rule in 2025
If you’re planning your FI journey today, here’s how I’d approach it:
- Use 4% as a Starting Point. It’s a simple, easy-to-understand benchmark. Multiply your annual expenses by 25 – that’s your ballpark FI number.
- Know Your Strategy. If you plan to sell assets, the 4% rule applies more directly. If you plan to live off dividends, you’ll measure success by income rather than withdrawal percentages.
- Build Flexibility. Separate “needs” from “wants.” That way, if inflation spikes or markets drop, you can trim wants without compromising essentials.
- Count Provident Funds. If you’re in a country with mandatory retirement contributions, treat that as your bond allocation. It’s your safety net.
Focus on Sustainable Growth. Whether through dividends, real estate, or other income streams, aim for cash flow that can rise with inflation over time.
Final Thoughts
So, is the 4% rule still safe in 2025? Yes – with caveats. It’s still a solid starting point, but it was never meant as a one-size-fits-all solution.
For me, dividend investing offers a more practical and less stressful path. My portfolio provides a steady income stream, grows with inflation, and avoids the pitfalls of sequence risk. My provident fund, meanwhile, provides the stability that bonds once did in traditional retirement planning.
At the end of the day, financial independence isn’t about following one formula. It’s about designing a system that gives you freedom, flexibility, and peace of mind. For me, that means a dividend machine that funds life perpetually – and that feels far safer than any percentage rule on paper.
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